In­done­sia cuts rate for third month, sig­nals cau­tious path

The Pak Banker - - COMPANIES/BOSS -

In­done­sia's cen­tral bank cut its main in­ter­est rate for the third straight month to boost growth, and sig­naled it will be more care­ful in any fur­ther pol­icy eas­ing.

Gov­er­nor Agus Mar­to­war­dojo and his board low­ered the ref­er­ence rate by 25 ba­sis points to 6.75 per­cent, Bank In­done­sia said on Thurs­day. That was in line with the fore­casts of 15 of the 24 econ­o­mists, while the rest pre­dicted no change. The mon­e­tary au­thor­ity also cut its lend­ing fa­cil­ity and de­posit fa­cil­ity rates by 25 ba­sis points each.

With ex­ports fall­ing and com­mod­ity prices un­der pres­sure, the govern­ment has been urg­ing Bank In­done­sia to join its re­gional and global coun­ter­parts and add mon­e­tary stim­u­lus to South­east Asia's largest econ­omy. The cen­tral bank re­sisted for much of 2015, fi­nally pulling the trig­ger this year af­ter in­fla­tion eased into its tar­get range and the ru­piah staged a re­bound against the dol­lar.

"If this is not the end of the eas­ing cy­cle, then it is very close to the end," said Trinh Nguyen, an econ­o­mist at Natixis Asia Ltd in Hong Kong. "If there are any more moves, the last one will be in April."

The ru­piah strength­ened 1.3 per­cent

to 13,095 per dol­lar ahead of the de­ci­sion, tak­ing its gains for the year to more than 5 per­cent, while the Jakarta stock mar­ket closed up 0.5 per­cent.

The de­ci­sion came just hours af­ter the U.S. Fed­eral Re­serve chose to hold its bench­mark rate and lower the path of fu­ture rises, trig­ger­ing an emerg­ing mar­ket cur­rency and stock rally.

In a state­ment af­ter the de­ci­sion, Bank In­done­sia said the cut was aimed at speed­ing up eco­nomic growth and in line with the in­fla­tion out­look. It said pol­icy mak­ers "would be more care­ful in de­cid­ing on any fur­ther eas­ing" and that the short term fo­cus would be on en­sur­ing the re­cent cuts were trans­mit­ted ef­fec­tively.

Pres­i­dent Joko Wi­dodo is seek­ing to re­vive an econ­omy that grew at the slow­est pace last year since the end of the global fi­nan­cial cri­sis in 2009. In an in­ter­view on Feb. 11, he said he wanted in­ter­est rates to "fall, fall, fall, fall and keep fall­ing" so that the coun­try could bet­ter com­pete with its neigh­bors.

"The room was there be­cause in­fla­tion has been re­ally soft and the ru­piah has been be­hav­ing quite well," Gundy Cahyadi, an econ­o­mist at DBS Group Hold­ings Ltd. in Sin­ga­pore, said be­fore the rate de­ci­sion. "It's all about get­ting eco­nomic growth, loan growth and sup­port­ing the econ­omy."

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